Retail Adoption of Crypto Would 'Bring the Internet to a Halt' ' BIS Report
The Bank of International Settlements (BIS) has leased a chapter from its forthcoming annual report that delivers a critical appraisal of bitcoin and cryptocurrency. The report attacks virtual currencies from several main standpoints: claiming that cryptocurrencies do not effectively perform monetary functions due to price volatility, that the retail adoption of blockchain-based payment mechanisms would 'bring the internet to a halt,' mass cryptocurrency adoption would reap a drastic environmental toll, and that the trust engendered by a decentralized network is too 'fragile' to compete with that of centralized institutions.
BIS Annual Report Provides Critical Appraisal of Crypto
Despite acknowledging that 'Cryptocurrencies such as bitcoin promise to deliver not only a convenient payment means based on digital technology, but also a novel mode of trust,' the BIS report seeks to highlight a number of 'economic limitations' arising from 'permissionless cryptocurrencies.'
By contrast, BIS claims that central banks emerged as the product of a 'quest for solid institutional underpinning trust in money' that arose 'in direct response to poor experiences with decentralized money.'
'The independent central bank,' the report claims, is the 'tried, trusted and resilient way to provide confidence in money in modern times.'
The report poses 'A thought experiment' as evidence of 'the inadequacy of cryptocurrencies as an everyday means of payment,' claiming that 'To process the number of digital retail transactions currently handled by selected national retail payment systems, the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in a matter of weeks,' and 'beyond that of servers in a matter of months' – adding that 'only supercomputers could keep up with verification of the incoming transactions.'
'The associated communication volumes,' the article posits, 'could bring the internet to a halt, as millions of users exchanges files on the order of magnitude of a terabyte.'
Firstly, BIS emphasizes the ecological strain caused by the mining process. The report claims that 'the total electricity use of bitcoin mining' equates to that of 'mid-sized economies such as Switzerland,' adding that 'the quest for decentralized trust has quickly become an environmental disaster.'
The report also posits that cryptocurrencies are inefficient as a form of money, arguing that the rigidity of their underlying protocols prevent them from 'being supplied elastically.”
'Trust can evaporate at any time because of the fragility of the decentralized consensus through which transactions are recorded,' the report concludes.
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